Regulatory, Forensics & Compliance

A short path from gambling to fraud

Further press releases confirm that there’s a close link between gambling and fraud. In July media reported that the son of the former CEO of Beneficial Corporation had been sentenced by a U.S. court. A 39 year old father of two, a graduate from Harvard Law School and Princeton University, admitted that he had embezzled the total of more than USD 38 million. His relatives, employer, schoolmates and the family of his former fiancée were among the harmed parties. The fraudster admitted that he had lost all the money on gambling. According to his attorney, he lost the total of USD 123 million in a short time while speculating on S&P 500 index options. After he had been arrested in March this year, he spent some time in a psychiatric ward, where he received addiction and depression treatment.

Also in July, a Catholic priest was arrested in Ontario (Canada) on the grounds of alleged embezzlement of USD 500 thousand, which he had collected from his parishioners to help Syrian refugees to settle in Canada. He lost all that money on gambling, though. The priest’s diocese committed to support the sponsorship programs he had launched.

Another two frauds were committed in Poland a few years ago. First, a 34 year old employee of an insurance company obtained fraudulently more than PLN 660 thousand. He forged scanned death certificates used before as the basis for payment of claims and deleted any records which could confirm that such payments had already been made. He would enter numbers of his own bank accounts for purposes of the related transfers on the claim forms. The fraud was committed 148 times. The man admitted that he had spent most of that money on gambling.

Second, a 28 year old bank officer in Tarnów converted more than PLN 2.5 million. As a teller and relationship manager for individuals he would terminate long-term deposits made by customers and take the money himself. In the course of the investigation he explained that it had been spent on gambling. The public prosecutor’s office in Tarnów emphasized that the gambling addiction had been the reason for several serious offences in the region at that time (2012).

Another example is that of a partner in the K&L Gates law firm in Hong Kong. It seems to prove that there is no upper limit for the amount that may be embezzled and lost. A lawyer whose annual income reached USD 1 million admitted that he had misappropriated HKD 8 billion (ca. USD 1 billion). The victims were 92 prospective investors (whom he had offered a fictitious investment opportunity), two clients of the law firm and the firm itself. The embezzled funds were used for repayment of his debt incurred for purposes of gambling in Macau casinos.

These examples show that compulsive gambling is often a motive for fraud, as it creates a strong need to obtain funds to be spent that way. According to D. Cressey’s “fraud triangle”, the probability of committing fraud increases if two additional factors are at play – opportunity and rationalization. Opportunity may be created by a deficiency in internal controls. Rationalization, or the excuse the fraudster finds for himself, may be provided by a consent given to such actions in the employee’s micro community. That’s why today business entities place a special focus on ensuring effectiveness of their internal controls, try to set the tone of zero tolerance for fraud in the organization and impose punishment for identified breaches of the rules of conduct more often than in the past.